Deepening Cycle of Job Loss Seen Lasting Into ’09
THE NY TIMES
By PETER S.
GOODMAN
Published: July 2, 2008
http://www.nytimes.com/2008/07/02/business/02jobs.html?pagewanted=1&hp
As automakers dropped their latest batch of awful sales
numbers on the market on Tuesday, reinforcing the gloom spreading across the
economy, the troubles confronting American workers seemed to intensify.
Plummeting home prices have in recent months
eliminated jobs for hundreds of thousands of people, from bankers and real
estate agents to construction workers and furniture manufacturers. Tighter
lending standards imposed by banks in the wake of huge mortgage losses have
made it hard for many Americans to secure credit — the lifeblood of expansion
in recent years — crimping the appetite of consumers, whose spending amounts to
70 percent of the economy.
Joblessness has accelerated, and employers have slashed
working hours even for those on their payrolls, shrinking the size of paychecks
just as workers need them the most.
Now, add to that unsavory mix the word from automakers that
sales plunged in June — by 28 percent for Ford,
21 percent for Toyota and 18 percent for General
Motors — a sharp sign that consumers are pulling back, making
manufacturers more likely to cut production and impose more layoffs. Until
recently, the weak labor market has been marked more by the reluctance of
employers to create new jobs than by mass layoffs.
Among economists, the sense is broadening that the troubles
dogging the economy will be stubborn, leaving in place an uncomfortable
combination of tight credit and scant job opportunities perhaps well into next
year.
“It’s a slow-motion recession,” said Ethan Harris, chief United States
economist for Lehman Brothers. “In a normal recession,
things kind of collapse and get so weak that you have nowhere to go but up. But
we’re not getting the classic two or three negative quarters. Instead, we’re
expecting two years of sub-par growth. Growth that’s not enough to generate
jobs. It’s kind of a chronic rather than an acute pain.”
Mr. Harris expects tepid economic growth and a shrinking
labor market to persist through the fall of 2009.
The national unemployment rate climbed a full percentage
point over the last year to 5.5 percent in May, according to the Labor
Department. That does not include people who are jobless and have given up
looking for work, or people who have been bumped to part-time jobs from
full-time. Add in those people and the so-called underemployment rate rises to
9.7 percent, up from 8.3 percent in May 2007, according to the Labor
Department.
Goldman Sachs forecasts that the unemployment
rate will peak at 6.4 percent late in 2009 before the picture improves, meaning
that the painful process of shedding jobs may be only half-way complete.
“The labor market is clearly deteriorating, and it’s highly
likely to keep deteriorating,” said Andrew Tilton, an economist at Goldman
Sachs. “It’s clear that the housing downturn and credit crunch are still very
much under way. Clearly, there are more jobs to be lost in housing, finance and
construction — hundreds of thousands of more jobs to be lost collectively.”
On Thursday, the Labor Department will release its snapshot
of the job market for June. Economists generally expect the report to show
60,000 more jobs lost, marking the sixth consecutive month of decline.
But many anticipate the unemployment rate will nudge down a
little bit, swinging back from an abrupt climb that could have been exaggerated
by survey glitches in the previous month, when the rate jumped by half a
percentage point — the sharpest one-month spike in 22 years.
If the unemployment rate were to hold steady or rise, that
would likely spook markets, underscoring the impact of the economic slowdown.
“Slowing wage growth and falling employment is absolutely
toxic if your business is selling anything to consumers,” said Ian Shepherdson,
chief United States
economist for High Frequency Economics.
Recent indications lend credence to the view that the job
market is in the grip of a sustained downturn. Three weeks in a row, new
unemployment claims have exceeded 380,000, a level generally associated with
recession. Construction spending fell in May. The University of Michigan Consumer Sentiment
Survey, which tracks attitudes about business and personal finance, has dropped
to a depth last seen in 1980.
On the factory floor, a weak dollar has been fanning export
sales. The I.S.M. Manufacturing Index — a widely watched gauge of factory
activity — nudged up in June to 50.2 from 49.6 in May, entering barely positive
territory, which indicates a slight expansion.
But that mostly reflected a buildup of inventories and
higher prices for raw materials, and not an improvement in orders for factory
goods, said Stuart G. Hoffman, chief economist at PNC Financial Service Group
in a note to clients. If business stays weak and orders do not materialize,
factory layoffs could accelerate. Indeed, the employment component of the index
declined to its lowest level in five years.
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Gloomy Prospects
Related
Economic Scene: Dispelling the Myths of Summer
(July 2, 2008)
Times Topics: U.S. Economy
The slide in the labor market has become both symptom and
cause of a weak economy, pulling many families into a downward spiral. Back
when housing prices were still rising, Americans borrowed exuberantly against
the value of their homes to finance renovations, vacations and shopping sprees.
But that artery of finance has constricted considerably along with access to
credit cards, forcing a reversion to the traditional limits of household
finance. Millions of American families must now confine their spending to what they
can bring home from work.
With job losses growing and working hours shrinking, many
paychecks are eroding, prompting millions of families to cut their spending.
Soaring prices for food and gasoline are overwhelming modest wage gains for
most workers, leaving households with even less money to spend. All of which
deprives struggling businesses of sales, prompting them to shed more workers,
sending the cycle down another turn. Starbucks
announced on Tuesday that it would close stores and eliminate up to 12,000
jobs, about 7 percent of its work force.
The fear of a downward spiral prompted the Bush
administration to unleash $100 billion worth of tax rebates in the hopes that
recipients would spend money and spur sales. The Treasury has already dispensed
more than $78 billion, and the money appears to be finding its way into cash
registers, with consumer spending climbing by 0.8 percent in May, according to
the Commerce Department.
Economists expect the rebates will continue to help retail
sales through the summer, fueling modest economic growth that spares some jobs
and prevents an outright contraction.
But few expect these rebate-laced sales to expand the job
market, because businesses understand that the one-time surge of money will
wear off later this summer.
Many experts expect the economy to then be pulled back into
the weeds by the same forces that have led the downturn — declining home
prices, tighter credit and leaner paychecks.
“It’s going to be very hard to overcome those headwinds,”
said Mr. Harris, the Lehman economist.